Today’s Wall Street Journal reviews the experience of a Medicare pilot program paying providers (physicians and hospitals) a lump sum for orthopedic surgery – and letting the providers negotiate prices with the manufacturers of artificial knees and hips.If the providers can lower overall costs of care, they share in the savings.

The pilot shows that providers with an incentive to keep prosthetic costs down negotiate hard to get better prices.They pressure the manufacturers by dropping those who are most expensive.And it works --one hospital system in Texas claims to have saved $2 million in less than a year. Keep in mind, though, that results claimed in the first year of a three year trial sometimes don’t pan out in the final analysis.

This is good news, and not a surprise.Providers who can benefit from savings they can wring from the system are effective at finding those savings!While you might think that an insurer with its volume could get the lowest prosthetic prices – it turns out that few insurers can drive all their business to a few manufacturers. Therefore, insurers can’t achieve prices as low as a determined (and far smaller) provider organization that is willing to lock out some manufacturers.

The WSJ article noted that this pilot program “rais[es] a long-term risk for manufacturers already facing some pressure on product prices.” That’s absolutely true, and emblematic of the challenge that every successful effort to lower health care costs lowers someone’s income.